A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
A look at the news

The Financial Times links volatility with the psychology of market players

30 May 2011

The prices of raw materials are still seeing plenty of movement on the markets, regularly soaring then falling from week to week. Today, experts are asking what are the reasons for this volatility?

A few days ago, The Financial Times provided some answers that contrast with traditional views: it is not just the fundamentals of physical markets that explain the strong destabilizing movements, but rather speculation and the psychology of market players.

In a review dated 19th May, the London financial daily first of all discussed the factor that is usually used in attempts to explain volatility: the evolution of physical markets with rising Asian demand and falling stock levels.

For the Financial Times, this factor is not sufficient in explaining volatility that affects commodities. Two additional factors must be taken into account: The money market with more liquidity in the economic network (which demonstrates the degree of speculation), and the psychology of market players on increasingly uncertain markets.

According to the FT, this last factor will “dominate” markets in coming months, because “the levels of supply and demand are changing very slowly while monetary balance remains relatively neutral.”

We have already demonstrated that simply using supply and demand to explain the volatility of agricultural prices has its limits, be it either with the recent example on the sugar market1 or new trading practices2. Agricultural markets have become complex markets of anticipation where the psychology of market players has an effect. It is therefore essential to have analysis tools that integrate these factors and to encourage greater stability on agricultural markets through appropriate regulation.

1 See momagri article of 14/03/11 : http://momagri.org/UK/a-look-at-the-news/Uncertainties-on-the-sugar-market_866.html

2 See momagri article of 02/05/11 : http://momagri.org/UK/a-look-at-the-news/The-Weather-Market-when-speculators-play-with-the-weather_899.html
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